17 Feb 2011

In an earlier post we had written about the concept of compulsory retirement, as it applies to Government institutional in the Indian policy. On a similar line in this post we are covering a recent decision of the Supreme Court which examine the concept of 'voluntary retirement'. Called upon to examine the propriety of the action of the CMD of the Indian Overseas Bank, the Supreme Court recently in Chairman and M.D. Indian Overseas Bank & Ors. v. Tribhuwan Nath Srivastava explained the meaning and rationale of the concept of voluntary retirement.

The Bench examined the position of law in the following terms;

12. The decision relied upon by Mr. Singh evidently supports his contention but the observations made by this Court as quoted above need to be understood in the context of the case. In the case of T.S.N. Raju, the Chairman of the Port Trust made a review on the implementation of the scheme for voluntary retirement and keeping in view the concern expressed by the Secretary, Department of Shipping, Ministry of Surface Transport, Government of India, took the decision that the request for voluntary retirement under the scheme should be considered only in case of employees who were below the age of 58 years. The application of T.S.N. Raju (and another respondent in that case) came up for consideration after they had crossed the age of 58 years and were accordingly rejected on the basis of the decision of the Chairman. They challenged the action of the Port Trust in rejecting their request for voluntary retirement, taking the plea before the court that the Port Trust had no discretion to reject their request to take retirement under the voluntary retirement scheme except in cases of the exigencies of service or the compelling necessities or the indispensability of the employees concerned. It was to rebut such sweeping assertion of right that this Court made the observation that under the scheme, the Chairman of the Port Trust had the absolute right to accept or not accept the request for voluntary retirement under the scheme.

13. The observations made in T.S.N. Raju do not mean that this Court endorsed or approved the discretion vested in the employer (be it the Port Trust or the bank) as absolute in the manner of an unruly horse prancing beyond the control of anyone or anything. In the 62nd year of the Republic, it is rather late in the day for the State or any of the State’s agencies or instrumentalities to claim absolute discretion, like the discretion of a despot or a discretion completely divorced from reasonableness.

14. But at the same time, it must also be realized that reasonableness is not something in the abstract. The reasonableness of a decision or an action can only be judged in the totality of the facts and circumstances and having regard to the object and purpose sought to be achieved. For example, if the object is to select someone for public employment or for promotion to a higher post, the only reasonable thing to do would be to select the most suitable and meritorious among the candidates. The selection of a person of inferior merit or someone who is not even eligible would be wholly unreasonable if the object is to choose the best as it should be in case of selection for public employment or promotion to a higher post. But in case an organisation undertakes manpower planning with a view to downsize the personnel and cut down the overhead costs, very different considerations would apply and in that case the application of the yard stick for selection for public employment or for promotion to a higher post would lead to results opposed to the very object of the exercise.

15. We feel that the High Court committed the fundamental mistake in completely misconstruing the object and purpose of the voluntary retirement scheme. As wrongly assumed by the High Court, the object of the scheme was not to reward the good officers or to punish the bad ones. Even though depending upon personal circumstances, voluntary retirement under the scheme might have appeared to some individual officers as personally beneficial, it was not envisaged by the bank as a means to give personal rewards or to punish individual employees by granting or refusing to grant voluntary retirement to them. The objective of the scheme as stated in the circular issued by the bank was “to adopt measures to have optimum human resources at various levels in keeping with the business strategies, skill profile to achieve balanced age and requirement of the bank”.

16. In Bank of India and Anr. v. K. Mohandas and Ors., (2009) 5 SCC 313, one of us (Lodha, J.) had the occasion to examine the genesis and raison d'être of the voluntary scheme framed by the banks; in that judgment it was observed, in paragraphs 3, 4, 5 and 36, as follows:

“3. In the month of May, 2000, Government of India, Ministry of Finance (Banking Division), advised the nationalized banks to carry out detailed manpower planning as these banks were found to have 25% of their manpower as surplus. A Human Resource Management Committee was constituted to examine the said issue and to suggest suitable remedial measures.

4. The Committee so constituted observed that high establishment cost and low productivity in public sector banks affect their profitability and it was necessary for these banks to convert their human resources into assets compatible with business strategies. Inter alia, the Committee placed the draft voluntary retirement scheme with the Central Government that would assist the banks in their efforts to optimize their human resources and achieve a balanced age and skills profile in keeping with their business strategies.

5. With the approval of the Central Government, Indian Banks’ Association (IBA) circulated salient features of the draft scheme to the nationalized banks for consideration and adoption by their respective boards vide its letter dated 31-8- 2000. The Board of Directors of each of the nationalized banks, keeping in view the objectives, considered the draft scheme and adopted it separately.

36. Any interpretation of the terms of VRS 2000, although contractual in nature, must meet the test of fairness. It has to be construed in a manner that avoids arbitrariness and unreasonableness on the part of the public sector banks who brought out VRS 2000 with an objective of rightsizing their manpower. The banks decided to shed surplus manpower. By formulation of the special scheme (VRS 2000), the banks intended to achieve their objective of rationalising their force as they were overstaffed. The special Scheme was, thus, oriented to lure the employees to go in for voluntary retirement. In this background, the consideration that was to pass between the parties assumes significance and a harmonious construction to the Scheme and the Pension Regulations, therefore, has to be given.”

17. Bearing in mind the object and purpose of the scheme as explained in the decision in Bank of India it is not difficult to see how the competent authority in the bank would deal with the applications for voluntary retirement made by individual officers; other things being equal between two applicants he would like to let go the one with the inferior service record and lower potential and consequently he would accept the application of the officer with the lower merit and may not accept the request of the officer with superior merit. This is for the simple reason that in the process of shedding surplus manpower no organisation would like to lose its best people.

18. From a purely subjective point of view the decision of the competent authority may appear to be “unfair” or even a ‘punishment” to the officer with the superior merit nevertheless it would be the proper and reasonable exercise of discretion in view of the basic objective of the scheme. We are not unconscious that the denial of request for voluntary retirement to an officer in practice may result in souring of relationship between the concerned officer and the bank (as it actually happened in this case) and as a consequence the concerned officer in future may not show the same competence and efficiency in the discharge of his duties for which he was sought to be retained in service. But that is a matter of personnel management and the competent authority is expected to factor in such considerations while taking a decision on individual applications. Such considerations would certainly not be a ground for the court to interfere with the decision of the competent authority. The discretion vested in the competent authority as stipulated in paragraph 4 under the heading ‘General Conditions’ (of the scheme) must be understood in this way and not absolute in the sense of being completely uncontrolled, whimsical or capricious.

19. Seen in this light even the grant of voluntary retirement to an employee who may not be strictly eligible under the scheme may not improve the claim of another applicant who might not only be eligible but with highly superior credentials. An employee facing a disciplinary proceeding and, therefore, ineligible under the scheme may otherwise also be completely useless. The bank may try to get rid of him by dropping the disciplinary proceeding or even by waiving the eligibility clause in his case. At worst the action of the bank may be irregular or even invalid in case of that particular employee. But unlike a selection for appointment or promotion to a superior post, this in itself would not provide a ground to another employee (legible and with superior credentials) to claim retirement as a matter of right.

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